06.04.2016 | Long dormant Nagorno-Karabakh dispute resurfaces

Upsurge in fighting offers investors a salutary lesson – frozen conflicts can flare up without much warning.

The term frozen conflict is a useful handle to describe the range of conflicts across the former Soviet Union, from Transnistria in Moldova, Abkhazia and South Ossetia in Georgia and, until very recently, Nagorno-Karabakh in Azerbaijan. However, as the escalation of violence along the frontline of the disputed border region demonstrates, investors ought to be wary when taking the term ‘frozen’ too literally.

Over the weekend, fighting left dozens dead on both sides and territory changed hands for the first time since the 1994 ceasefire between Armenia and Azerbaijan. Long considered a frozen conflict par excellence, regional analysts and diplomats are scrambling to understand exactly why the situation has intensified beyond the intermittent skirmishes that have characterised the 20-year status quo in the region.

It is hard to say what lies behind the escalation. On 2 April the head of the Russian-led military alliance, the Collective Security Treaty Organisation, of which Armenia is a member, placed the blame at Azerbaijan’s door, with Armenia describing events as a “massive attack”. The Azerbaijani Foreign Ministry claimed its forces were responding to Armenian shelling of Azeri army positions and villages the night before.

Although some analysts have tried to interpret the violence as a proxy conflict connected to Russia, Turkey and Iran’s struggle for influence in the region, it appears likelier to be the result of the recent heavy militarisation of both sides, the failure of successive rounds of talks and the uncompromising rhetoric emanating from both governments.

It appears unlikely that this week’s events will escalate further into open war, with representatives of the Azerbaijani Ministry of Defence and the Karabakh defence army announcing a ceasefire along the front line on 5 April. The authorities in Armenia and Azerbaijan cannot afford to see a resumption of hostilities, as this could spook investors at a time when both countries are struggling economically.

Last year central Yerevan was temporarily paralysed during protests against increasing electricity tariffs dubbed ‘Electric Yerevan’. In January demonstrations were held in cities across Azerbaijan against the rising prices of consumer goods. In response to the unrest, Baku cut taxes on basic foodstuffs while in Armenia electricity prices have been temporarily subsidised.

It could be argued that the Baku and Yerevan governments have a mutual interest in ramping up tensions over Nagorno Karabakh – an emotive subject in both countries – as a means of rallying political support in the face of economic gloom. But whatever the motives, any further opening up of the conflict would be a disaster for both countries, further destabilising the region and driving away foreign investment.